Income Tax Appellate Tribunal - Kolkata
Paharpur Cooling Towers Ltd. vs Deputy Commissioner Of Income-Tax on 16 July, 2002
ORDER
Pramod Kumar, A.M.
1. These two appeals, filed by the assessee, are directed against two separate orders - both dated 15-12-1997 - passed by the learned CIT(A) XI, Calcutta, and, as a matter of convenience, these appeals are being disposed of by way of this consolidated order.
2. We will first take up ITA No. 313/Cal./98 i.e. assessee's appeal for the assessment year 1994-95.
3. In first ground of appeal, the assessee is aggrieved of CIT(A)'s confirming 'the loss from purchase and sale of shares and securities of Rs. 1,41,60,772 as speculation loss as per Explanation to Section 73' of the Income-tax Act, 1961 (hereinafter referred to as 'the Act').
4. Briefly, the facts. During the course of assessment proceedings, Assessing Officer noticed that in the relevant previous year 'the assessee has sold some shares which were held by it as stock in trade' and that the assessee incurred loss of Rs. 1,41,60,772 on such transactions. It is also an admitted position that main source of income for the assessee was under the head 'income from business' and, accordingly, the assessee's case was not covered by exclusion clause in Explanation to Section 73. On these admitted facts, Assessing Officer required the assessee to show cause as to why the loss incurred in share transactions should not be treated as a 'speculation loss' and, on that basis, its set off against the 'income from business' be declined. The thrust of assessee's submission was that since there has been actual delivery of scrips, 'the impugned transaction falls beyond the ambit of speculative transaction as defined in Section 43(5)', and in support of this proposition a reference was also made to the definition of 'speculative transactions' under Section 43(5) of the Act. Referring to the wordings of Explanation to Section 73, it was further submitted that speculative transaction carried on by the assessee should be such as to constitute a 'business'. The assessee then referred to the legislative intent behind introduction of Explanation to Section 73 and, for that purposes, referred to CBDT Circular No. 204 dated 24-7-1976. It was argued that the intention of Legislature was to curb the malpractices adopted by the certain business houses who control group of companies to reduce the taxable income of the companies under their control. It was thus argued that 'it would be against the intention of legislature to bring within the purview of Section 73 each and every company that deals in shares and securities. The assessee concluded by making emphatic submissions against the literal construction of the statute, urging an interpretation in consonance with intent of Legislature and submitting that since language is at best an imperfect instrument for expression of human thought and since it is futile to expect every statutory provision to be drafted with divine prescience and perfect clarity, it is responsibility of guardians of justice not to make a fortress out of dictionary but to remember that statutes always have some purpose or object to accomplish, whose sympathetic and imaginative discovery is the surest guide to their meaning. Learned Assessing Officer was, however, far from impressed with these erudite submissions. He observed that the wordings of the statute are plain and simple and, as held by Hon'ble Supreme Court in the case of CIT v. Vegetable Products Ltd. [1973] 88 ITR 192 "if the language is plain, the fact that the consequence of giving effect to it may lead to some absurd results is not a factor to be taken into account in interpreting a provision. It is for the Legislature to step in and remove the absurdity." The Assessing Officer also referred to Hon'ble Supreme Court's observation, in the case of Controller of Estate Duty v. Alladi Kuppuswamy [1977] 108 ITR 439, that "where the phraseology of a particular section of the statute takes within its sweep the transaction which is taxable, it is not for the court to strain and stress the language of the section so as to enable the tax payer to escape the law". The contentions of the assessee were thus rejected and the Assessing Officer, relying upon plain provisions of Explanation to Section 73, as also the contents of the CBDT Circular No. 204, the loss on share transaction was treated as speculation loss since assessee company's main income was not from interest on securities, income from house property, capital gains or income from other sources. Aggrieved inter alia by the loss on share transactions being treated as 'speculation loss', assessee carried the matter in appeal before the CIT(A) but without any success. Still aggrieved, the assessee is in second appeal before us.
5. Dr. Debi Pal, learned counsel for the assessee, submitted that the Explanation to Section 73 has no application in the matter. He laid great emphasis on the words 'for the purpose of this section' mentioned in the Explanation to Section 73, and submitted that the Explanation to Section 73 is relevant only for the purposes of Section 73 itself and does not travel to Sections 70, 71 and 72, or, for that purpose, to any other section of the Act. It is then submitted that when the unabsorbed business loss is carried forward under Section 72 of the Act, there is no question of declining carry forward of the said unabsorbed business loss because of application of Section 73 of the Act. It is further submitted that as to what will constitute 'speculation loss' for the purpose of Section 72 of the Act, will be governed by the provisions of Section 43(5) of the Act. The proposition thus advanced by the learned counsel is that the expression 'speculation business', for purposes other than Section 73 of the Act, is to be governed by the definition contained in Section 43(5), as read with Section 28 (Explanation 2), of the Act, and, therefore, the question of carry forward of 'business loss' is to be decided with reference to the provisions of Section 43(5) and not Explanation to Section 73. It has also been submitted that since it; is not even the revenue's case that the contracts are settled otherwise than by physical delivery, Section 43(5) does not come to the play in the instant case. Reliance was placed on the order of a co-ordinate bench in the case of Rajan Enterprises (P.) Ltd. v. ITO [1992] 41 ITD 469. As for the revenue's reliance on the judgment of Hon'ble juris diction al High Court in the case of CITv. Arvind Investments Ltd. [1991] 192 ITR 365', while learned counsel was fair enough to admit that, in that judgment, Hon'ble High Court had held that even if the assessee carries on the only business of share dealing. Explanation to Section 73 will apply, learned counsel has also submitted that the above submissions of the assessee were neither raised before the High Court nor, accordingly, decided by the High Court. It was also pleaded that the High Court had no occasion to consider the present submission that after applying Sections 70, 71 and 72, there is no occasion for application to Section 73 because the unabsorbed loss is carried forward under Section 72 for set off in the succeeding year. Learned counsel submitted that the Explanation to Section 73 is a legal fiction and the same is, therefore, required to be strictly construed. In response to bench's query as to why should the special provisions under Section 73 not over-ride general provisions contained in Sections 70 to 72 and application of the principle of 'generalia specialibus non derogant, learned counsel submitted that but for the wordings 'for the purpose of this section' appearing in Explanation to Section 73, bench's query could have been replied in positive. He submitted that it may be simply a drafting error that these words have inadvertently crept in the statute but once these words exist on the statute, it is not open to us to apply this Explanation beyond Section 73, and thereby supplant the law or to cure the deficiencies contained therein. Learned counsel submitted that if the words used in Section 73 were 'for the purpose of setting off and carry forward of losses' in the place of 'for the purpose of this section', the assessee would indeed have had no case but then this Tribunal can only interpret the law as it actually existed and not as it should have existed. He thus admitted to be capitalizing on, what he perceived as, a 'lacunae in drafting of Explanation to Section 73'. It was on the basis of these submissions that learned counsel urged us to reverse the orders of the authorities below, by issuing direction to the effect that loss of Rs. 1,41,60,772 is required to be treated as a 'business loss', as against 'speculation loss' held by the authorities below. Without prejudice to these arguments, it was further submitted that loss in share dealings was only on account of fall in value of shares held as closing stock and, therefore, the loss so suffered cannot be said to be loss on account of 'purchase and sale of shares' within meanings of Section 73. Reliance was placed on the judgment of Hon'ble Supreme Court in the case of Chainrup Sampatram v. CIT [1953] 24 ITR 481 in support of the proposition that purpose of valuing closing stock is only to cancel out the related entries on the debit side of trading account and it was argued that loss sustained on valuation of closing stock cannot be said to be loss on account of sale and purchase of the shares. In response to bench's proposition that Chainrup Sampatram's case (supra) seems to supports the case of the revenue on that issue inasmuch as it holds that loss on account of fall in value of stock is to be treated as loss of that business on the ground of prudence, fully sanctioned by the custom, and as the only exception to the rigid doctrine of booking profits and losses in respect of goods actually sold, learned counsel submitted that his reliance on this judgment is only to highlight the true purpose of valuation of closing stock and that the loss of the assessee being admittedly a notional loss, it cannot be said to be loss on account of sale and purchase of shares and securities. It was submitted that, for this reason also, the loss of Rs. 1,41,60,772 should be treated as a normal 'business loss' and not as 'speculation loss'. We were thus urged to vacate, for this reason also, the findings of the authorities below and to direct the Assessing Officer to treat the loss of Rs. 1,41,60,772 as normal business loss to be carried forward under Section 72 of the Act. On the other hand, Sri R.R. Prasad, learned Departmental Representative, emphatically relied upon the authorities below, and submitted that the matter being squarely covered against the assessee by the judgment of Hon'ble Calcutta High Court, in the case of Arvind Investments Ltd. (supra) the Tribunal should decline to interfere in the matter. It was submitted that the statutory provision is not even capable of any other interpretation than the one given by the authorities below and learned counsel's submissions are only aimed at confusing the issue by resorting to legal jugglery. It was also submitted that as observed by the Assessing Officer the impugned loss is loss on sale of shares and that there is no finding by the authorities below that the loss is on account of fall in valuation of shares. Learned Departmental Representative thus urged us to approve the orders of the authorities below and, thereby, decline to interfere in the matter. We have heard the rival contentions, perused the orders of the authorities below and deliberated upon the applicable legal provisions and legal precedents on the issue in appeal before us.
6. We find that sub chapter 'set off, or carry forward and set off' in chapter VI of the Income Tax Act begins with Section 70 which, as it stood at the material point of time, is reproduced below for ready reference :
"Save as otherwise provided in this Act, where the net result for any assessment year in respect of any source falling under any head of income is a loss, the assessee shall be entitled to have the amount of such loss set off against his income from any other source under the same head."
It is thus abundantly clear that the right to set off under Section 70 is subject to other provisions of the Act which includes Section 73 as well. Section 73 of the Act provides as follows :
"73. Losses in speculation business. - (1) Any loss, computed in respect of a speculation business carried on by the assessee, shall not be set off except against profits and gains, if any, of another speculation business.
(2) Where for any assessment year any loss computed in respect of a speculation business has not been wholly set off under Sub-section (1), so much of the loss as is not so set off or the whole loss where the assessee had no income from any other speculation business, shall, subject to the other provisions of this Chapter, be carried forward to the following assessment year, and-
(i) it shall be set off against the profits and gains, if any, of any speculation business carried on by him assessable for that assessment year; and
(ii) if the loss cannot be wholly so set off, the amount of loss not so set off shall be carried forward to the following assessment year and so on.
(3) In respect of allowance on account of depreciation or capital expenditure on scientific research, the provisions of Sub-section (2) of Section 72 shall apply in relation to speculation business as they apply in relation to any other business.
(4) No loss shall be carried forward under this section for more than eight assessment years immediately succeeding the assessment year for which the loss was first computed.
Explanation.--Where any part of the business of a company other than a company whose gross total income consists mainly of income which is chargeable under the heads "Interest on securities", "Income from house property", "Capital gains" and "Income from other sources", or a company the principal business of which is the business of banking or the granting of loans and advances consists in the purchase and sale of shares of other companies, such company shall, for the purposes of this section be deemed to be carrying on a speculation business to the extent to which the business consists of the purchase and sale of such shares.
7. Once it is not in dispute that the provisions of Section 70 are subject to the provisions of inter alia Section 73 and that under the provisions of Section 73(1) losses in speculation business, within meanings of Explanation to Section 73, can only be set off against another speculation business, it admits no controversy that in case a loss is in the nature of 'speculation loss', within meanings of Explanation to Section 73, it cannot be set off against any other nature of income under any other head.
8. We further find that Section 72 of the Act, which deals with 'carry forward and set off of business losses' provides as follows :--
"72. Carry forward and set off of business losses. - (1) Where for any assessment year, the net result of the computation under the head "profits and gains of business or profession" is a loss to the assessce, not being a loss sustained in a speculation business, and such loss cannot be or is not wholly set off against income under any head of income in accordance with the provisions of Section 71, so much of the loss as has not been so set off or, where he has no income under any other head, the whole loss shall, subject to the other provisions of this Chapter, be carried forward to the following assessment year, and-
(i) it shall be set off against the profits and gains, if any, of any business or profession carried on by him and assessable for that assessment year;
(II) if the loss cannot be wholly so set off, the amount of loss not so set off shall be carried forward to the following assessment year and so on :
Provided that where the whole or any part of such loss is sustained in any such business as is referred to in Section 33B which is discontinued in the circumstances specified in that section, and, thereafter, at any time before the expiry of the period of three years referred to in that section, such business is re-established, reconstructed or revived by the assessee, so much of the loss as is attributable to such business shall be carried forward to the assessment year relevant to the previous year in which the business is so re-established, reconstructed or revived, and-
(a) it shall be set off against the profits and gains, if any, of that business or any other business carried on by him and assessable for that assessment year; and
(b) if the loss cannot be wholly so set off, the amount of loss not so set off shall, in case the business so re-established, reconstructed or revived continues to be carried on by the assessee, be carried forward to the following assessment year and so on for seven assessment years immediately succeeding.
(2) where any allowance or part thereof is, under Sub-section (2) of Section 32 or Sub-section (4) of Section 35, to be carried forward, effect shall first be given to the provisions of this section.
(3) No loss (other than the loss referred to in the proviso to Sub-section (1) of this section) shall be carried forward under this section for more than eight assessment years immediately succeeding the assessment year for which the loss was first computed."
9. We find that the above provisions are for 'carry forward and set off of business losses' in general, whereas Section 73, reproduced earlier in this order, deals specifically with 'losses in speculation business'. As to the question that which of these legal provisions will govern the principles regarding carry forward and set off of speculation losses, we find guidance from the principle 'generalia specialibus non derogant' which lays down that the general provisions will not override the specific provisions. In other words, provisions of Section 73, which specifically deal with speculation business, cannot be derogated by the provisions of Section 72 of the Act which deals with business losses in general. As observed by Hon'ble Supreme Court in the case of Union of India v. India Fisheries (P) Ltd. [1965] 57 ITR 331 "If there is an apparent conflict between two independent provisions of law, the special provision must prevail." This principle is described in Sampat lyengar's commentary on Law of Income Tax (9th Edition; Vol. 1 Page 48) as follows :
"The general maxim is generalia specialibus non derogant, that is, general things will not derogate from special things. The maxim is also otherwise expressed as generalibus specialia derogant. A special provision normally excludes the operation of a general provision.... It can be resorted to for deciding the competing claims of two provisions in the same enactment, one specific and other general with some overlapping between the two. The requisite conditions to attract this principle are : Firstly, both the general enactment and the particular enactment must be simultaneously operative, the general enactment covering larger field and particular enactment covering a limited field out of a larger field covered by the general enactment and, secondly, there must be nothing contained in the general provisions indicating the legislative intent to overrule or set aside the particular provision."
10. This principle has also been dealt with by Kolkata SMC bench, in the case of ACIT v. Executors of the Estate of Bhagwan Devi Sarogi [2001] 79 ITD 539, wherein Hon'ble Vice President Shri Garg has inter atia observed that "To solve such a conflict (of competing claims of sections), one has to resort to interpretation of law and the famous dictum is where there is a general provision which, if applied in its entirety, would neutralize a special provision dealing with the same subject-matter, the special provision must be read as a proviso to the general provision and the general provision, insofar as it is inconsistent with the special provisions, must be deemed not to apply". We are in respectful agreement with the views expressed by the Hon'ble Vice President Garg. Similar views were also expressed in the case of ITO v. Titagarh Steels Ltd. [2001] 79 ITD 532, wherein one of us, while articulating the views of Kolkata C Bench, had observed as follows :
"It is fairly well-settled in law that general provisions do not override specific provisions, as aptly described by the maxim 'generalia specialibus non derogant'. A special provision normally excludes the operation of a general provision and we are of the view that such a principle governs the instant case also. In the case of South India Corporation (P.) Ltd. v. Secretary, Board of Revenue AIR 1964 SC 207, Hon'ble Supreme Court had an occasion to consider whether article 277 or article 372 of the Constitution of India should govern the particular situation involved therein. Their Lordships then pointed out that "a special provision should be given effect to the extent of its scope, leaving the general provision to control cases where specific provisions do not apply."
11. Learned counsel has laid great emphasis on the decision of a coordinate bench, in the case of Rajan Enterprises (P.) Ltd. (supra), particularly on the observations in paragraph 9 to the effect that "one has to set off the loss against the profit of the other sources under the same head under Section 70 and thereafter against the income from other heads, under Section 71. It is only then, one has to see whether the proviso to Section 73 was applicable or not as the provisions come into play when the gross total income is computed first". It is thus contended that the application of sections is to be taken in the order in which they are placed in the Act and, therefore, Section 72 will take precedence over the application of Section 73. Learned counsel's proposition is that since business loss is already carried forward under Section 72 of the Act, by the time it comes to application of Section 73, there is nothing left to which this section can be applied. However, the very basis of this proposition is fallacious because, as we have observed earlier in this order, in view of the principle of generaliaspecialibus non derogant, Section 73 being a specific provision has to take precedence over the general provisions of Section 72. In any event, the precedence being assigned to provisions of law based on the order in which they are placed in an enactment is alien to the principles of interpretation. As for the precedence being assigned to various sections in the case of Rajan Enterprises (P.) Ltd. (supra), it is because unless intra head set off (section 70) is done, one cannot even work out the incomes under various head which will be the basic figures for inter head adjustment (section 71), and because unless inter head adjustment is done, gross total income cannot be worked out without which calculations for Section 73 cannot be done. In our considered view, this order of precedence has nothing to do with, as suggested by the learned counsel, with the order in which the sections are placed in the statute. We, therefore, see no support to assessee's case by Tribunal's decision in the case of Rajan Enterprises (P.) Ltd. (supra).
12. We now come to assessee's plea that as to what will constitute 'speculation loss' for the purpose of Section 72 of the Act, will be governed by the provisions of Section 43(5) of the Act. We may mention that as per provisions of Section 43(5) of the Act, "In Sections 28 to 41 and in this section, unless the context otherwise requires "speculative transaction"
means a transaction in which a contract for the purchase or sale of any commodity, including stocks and shares, is periodically or ultimately settled otherwise than by the actual delivery or transfer of the commodity or scrips". In substance, the proposition thus canvassed is that the expression 'speculation business', for purposes other than Section 73 of the Act, is to be governed by the definition contained in Section 43(5), as read with Section 28 (Explanation 2), of the Act. However, this proposition also proceeds on a fallacy i.e. that the definition under Section 43(5) and definition under Explanation to Section 73 are competing and mutually exclusive. In our considered view, however, definition of speculation loss, as given under Explanation to Section 73, is supplementing and has application only in the cases of certain companies but such a definition is not to the exclusion of definition assigned under Section 43(5). Even when provisions of Explanation to Section 73 apply in a case, such a situation will not imply that the provisions of Section 43 (5) will not apply in that case. While computing income under the head 'income from business and profession', profits from transactions in the nature of 'speculative transactions', defined by Section 43(5) is, in all cases, required to be treated as 'speculation profits'. In addition to this provision, in the cases of companies profits from a business, which fulfils the conditions specified under Explanation to Section 73, are also required to be taken as profits from speculation business. In our considered view, therefore, there is no conflict in these two provisions, namely provisions of Section 43(5) and of Explanation to Section 73. As far as scope of Explanation to Section 73 is concerned, it may be relevant to quote from the CBDT Circular No. 204 dated 24-7-1976 which inter alia states as follows ;
"Section 73 provides that any loss computed in respect of speculation business carried on by an assessee will not be set-off except against the profits and gains, if any, or another speculation business. Further, where any loss, computed in respect of a speculation business for an assessment year is not wholly set-off in the above manner in the said year, the excess shall be allowed to be carried forward to the following assessment year and set-off against the speculation profits, if any, in that year, and so on. The Amending Act has added an Explanation to Section 73 to provide that the business of purchase and sale or shares by companies which are not investment or banking companies or companies carrying on business of granting loans or advances will be treated on the same footing as a speculation business. Thus, in the case of aforesaid companies, the losses from share dealings will now be set-off only against profits or gains of a speculation business. Where any such loss for an assessment year is not wholly set-off against profits from a speculation business, the excess will be carried forward to the following assessment year and set-off against profits, if any, from any speculation business."
13. In any event, as observed by a co-ordinate bench in the case of Executor of the Estate of Bhagwan Devi Sarogi(supra) a "special provision must be read as a proviso to the general provision and the general provision, insofar as it is inconsistent with the special provisions, must be deemed not to apply". Therefore, provisions of Section 73 are required to be read as proviso to Section 72 and, to the extent carry forward of speculation losses is concerned, Section 72 will not have application in the matter. In this view of the matter, we reject the contention that, for the purpose of Section 72 of the Act, the question as to what will constitute 'speculation loss' will be governed only by the provisions of Section 43(5) of the Act. We also see no substance in learned counsel's reliance on the words 'for the purpose of this section' appearing in Explanation to Section 73 because once specific provisions under Section 73 are to be applied first, i.e. before the application of general provisions of Section 72, only non-speculation loss will be subject-matter of carry forward under Section 72 and, therefore, definition of 'speculation loss' will indeed not be relevant for the purpose of Section 72. In fact, entire arguments proceed on the foundation that application of Section 72 will have precedence over application of Section 73 and once that basic foundation is found to be unsustainable in law, we see no substance in ingenious, but fallacious, arguments of the assessee.
14. We may also mention that Hon'ble jurisdictional High Court, in the case of CIT v. Jayashree Charity Trust [1986] 159 ITR 280 (Cal.) has inter alia observed that "to resolve this controversy, regard must be had to the language that has been employed and also to the object of the statute. It is well-settled that, if possible, the words of a statute must be construed so as to give a sensible meaning to them. The words ought to be construed ut res magis valeat quam pereat". Similarly, Hon'ble Supreme Court, in the case of CIT v. Teja Singh [1959] 35 ITR 408 has also observed as follows :
"A construction which leads to such a result must, if that is possible, be avoided, on the principle expressed in the maxim, "ut res magis valeat quam pereaf. Vide Courtis v. Stovin and in particular, the following observations of Fry, L.J., at page 519 :
The only alternative construction offered to us would lead to this result, that the plain intention of the Legislature had entirely failed by reason of a slight inexactitude in the language of the section. If we were to adopt this construction, we should be constructing the Act in order to defeat its object rather than with a view to carry its object into effect."
Vide also Craies on Statute Law, page 90 and Maxwell on The Interpretation of Statutes, Tenth Edition, pages 236-237. "A statute is designed", observed Lord Dunedin in Whitney v. Commissioners of Inland Revenue, "to be workable, the interpretation thereof by a court should be to secure that object, unless crucial omission or clear direction makes that end unattainable."
15. In case we are to accept the contentions of the learned counsel, Explanation to Section 73 has to be treated as otiose because, if this provision cannot be put into service for determining what is 'speculation loss' for the purpose of 'carry forward and set off of losses, this provision cannot be put into service for any other purpose at all. This construction will, therefore, tantamount to obliterating the provision from the statute and will, accordingly, be clearly contrary to the principle of ut res magis valeat quam pereat approved by the Hon'ble Supreme Court in Teja Singh's case (supra) and by the Hon'ble jurisdictional High Court in Jayshree Charity Trust's case (supra). It is, however, an altogether different matter that since we have rejected the interpretation, canvassed by the assessee, on merits and for the detailed reasons set out above, this aspect of the matter, strictly speaking, ends up being of somewhat academic interest.
16. We now move on to the assessee's alternate contention that the loss in share dealings was only on account of fall in value of shares held as closing stock and, therefore, the loss so suffered cannot be said to be loss on account of 'purchase and sale of shares' within meanings of Section 73. However, we find that there is nothing on record to substantiate the factual elements embedded in this proposition and this plea, being taken for the first time at this stage, seems to be a new twist to the assessee's case. On the contrary, there is a categorical and uncontroverted finding by the Assessing Officer that the assessee has sold some shares which were held by it as 'stock in trade' and that the assessee incurred loss of Rs. 1,41,60,772 on such transactions. Our careful perusal of the assessee's paper-book also reveals that, as evident from computation of 'profit/ (loss) from the business of dealing in shares and securities' at page 10 of the paper-book, during the year in appeal, the purchases of securities by the assessee amounted to Rs. 11,41,72,539 and assessee's sale of the securities amounted to Rs. 7,46,51,708. It is thus clear that the assessee's contention is contrary to the admitted facts on record. Learned counsel for the assessee has also not brought on record any material to substantiate the factual elements embedded in the proposition canvassed by him.
17. We are also of the considered view that even if the loss is only on account of fall in value of stock, it is still in the nature of loss incurred from that business. A careful perusal of Explanation to Section 73 indicates that this Explanation lays down that the expression 'speculation business', under the specified circumstances, will cover assessee's business 'to the extent to which the business consists of the purchase and sale of such shares'. The definition thus sought to be placed is of the 'speculation business' and not 'speculation profits'. As to what will constitute profits from such speculation business, this is to be essentially governed by the normal accounting principles and business practices. Unlike the definition under Section 43(5) which defines 'speculative transactions' per se, the deeming provisions of Explanation to Section 73 lay down the circumstances in which, and the extent to which, a business is to be deemed as 'speculation business'. The thrust of the provisions under Explanation to Section 73 is on the nature of 'business', rather than nature of 'transaction'. It is thus immaterial as to whether profit is, or is not, on account of sale and purchase of shares but, in our considered view, to the extent it is arising out of 'business of purchase and sale of shares', it will be hit by the provisions of Explanation to Section 73. As held by Hon'ble Supreme Court in the case of Chainrup Sampatram's case (supra) loss on account of fall in value of stock is to be treated as loss of that business on the ground of prudence, fully sanctioned by the custom. Their Lordships of Hon'ble Supreme Court inter alia observed that, "...valuation of unsold stock at the end of an accounting period is a necessary part of the process of determining the trading results of that period, and can in no sense be regarded as source of such profits (or losses)". In this view of the matter, the loss on valuation of closing stock of shares, in the present case, cannot be treated any different than a normal trading loss; such a loss is, as is the settled legal position, an integral part of the loss on trading, i.e. purchase and sale, of shares.
18. Accordingly, in our considered view, the proposition advanced by the learned counsel is neither supported by admitted factual position or the settled legal principles. For these reasons, we reject the alternate contention also.
19. Before parting with this issue, we may also briefly touch upon the assessee's plea, against literal interpretation of the provisions, taken up before the authorities below. Suffice to say that we are in considered agreement with the observations of the learned Assessing Officer to the effect that the wordings of the statute are plain and simple and, as held by Hon'ble Supreme Court in the case of Vegetable Products Ltd. (supra). "If the language is plain, the fact that the consequence of giving effect to it may lead to some absurd results is not a factor to be taken into account in interpreting a provision. It is for the Legislature to step in and remove the absurdity." We are also in considered agreement with the Assessing Officer's reliance on Hon'ble Supreme Court observation in the case of Alladi Kuppuswamy (supra), that "where the phraseology of a particular section of the statute takes within its sweep the transaction which is taxable, it is not for the court to strain and stresss the language of the section so as to enable the tax payer to escape the law". In view of these discussions, we support the action of the authorities below, also on the principles governing interpretation of related legal provisions, and we see no need to interfere in the matter.
20. To sum up, we reject all the above contentions advanced by the assessee and hold that the CIT(A) was justified in confirming 'the loss from purchase and sale of shares and securities of Rs. 1,41,60,772 as speculation loss as per Explanation to Section 73' of the Act. We thus decline to interfere in the orders of the authorities below.
21-33. [These paras are not reproduced here as they involve minor issues.] 34. We now move on to ITA No. 320/Cal./98.
35. In this appeal, the assessee has taken four grounds but solitary grievance of the assessee is against CIT(A)'s confirming the order of the Assessing Officer holding that not treating the loss of Rs. 233.83 lakhs, incurred by the assessee in business of sale and purchase of shares, as 'speculation loss' was a mistake apparent from record and that this mistake was liable to be rectified under Section 154 of the Act.
36. Briefly, the material facts are that after the assessment under Section 143(3) was completed, assessing total income at Rs. 1132.19 lakhs, the Assessing Officer realised that though the assessee had disclosed a loss of Rs. 233.83 lakhs from business of trading in shares and though the provisions of Explanation to Section 73 were clearly applicable in assessee's case, the Assessing Officer had treated allowed set off of loss incurred in such share trading against the normal business profits. It was in this background that Assessing Officer issued notice requiring the assessee to show cause as to why this mistake should not be rectified under Section 154 of the Act.
37. In reply, the assessee invited Assessing Officer's attention to the provisions of Section 43(5) which define the 'speculative transactions' and the fact that the present case is admittedly not covered by the provisions of Section 43(5). However, as to the issue of applicability of provisions of Explanation to Section 73, it was submitted that in view of the observations in the CBDT circular No. 204 dated 24-7-1976 to the effect that 'the object of the provision is to curb the device sometimes resorted to by business houses controlling groups of companies to manipulate and reduce the taxable income of companies under their control', and in view of the fact that there is nothing on record to suggest that there was any effort to manipulate and reduce the taxable income, application of Explanation to Section 73 in the instant case will be contrary to legislative intent behind introducing this provision. The assessee thus urged the Assessing Officer not to adopt the literal interpretation in this case. The Assessing Officer, however, was not impressed. He observed that the wordings of the statute are plain and simple and, as held by Hon'ble Supreme Court in the case of Vegetable Products Ltd. (supra) "If the language is plain, the fact that the consequence of giving effect to it may lead to some absurd results is not a factor to be taken into account in interpreting a provision. It is for the Legislature to step in and remove the absurdity." The Assessing Officer also referred to Hon'ble Supreme Court's observation, in the case of Alladi Kuppuswamy (supra) that "where the phraseology of a particular section of the statute takes within its sweep the transaction which is taxable, it is not for the court to strain and stress the language of the section so as to enable the tax payer to escape the law". The Assessing Officer concluded that 'since there is no ambiguity in the provision of Section 73 nor in the Circular of the Board clarifying the provision, the contention raised by the assessee is rejected and total income is revised' by adding the speculation loss of Rs. 233.83 lakhs to the assessed income of Rs. 1132.19 lakhs and by consequent allowance of carry forward of the loss in speculation business. Aggrieved, the assessee carried the matter in appeal but without any success. Still aggrieved, the assessee is in second appeal before us.
38. As this appeal was heard along with ITA No. 313/Cal./98 wherein the very applicability of Explanation to Section 73, for determining as to what will constitute 'speculation loss', was challenged, learned counsel urged to us to take into account his submissions in ITA No. 313/Cal./98 so far as merits of the matter are concerned. Without prejudice thereto, it was further argued that in the light of the elaborate submissions made on that aspect of the matter, it may be appreciated that two views about applicability of Explanation to Section 73 in the instant case are at least possible and, therefore, the mistake, even if there be any, is not a mistake which can be covered by the limited scope of Section 154. Learned counsel also placed reliance on the landmark judgment of Hon'ble Supreme Court in the case of T.S. Balaram ITO v. Volkart Bros. [1971] 82 ITR 50. On the other hand, learned Departmental Representative placed his reliance on the authorities below. Rival contentions are conscientiously heard, orders of the authorities below carefully perused, and applicable legal position duly deliberated upon.
39. In view of the conclusions that we have arrived at, in ITA No. 313/Cal./ 98, discussed in paragraphs 6 to 21 above, we hold that assessee's contentions are not sustainable in law, and, accordingly, we reject the same on merits. However, there cannot be any quarrel with the proposition laid down by Hon'ble Supreme Court, in Volkart Bros' case (supra) that in order for a mistake to be covered by the scope of Section 154, a mistake must be an obvious and patent mistake and not something which can be established by a long drawn process of reasoning on points on which there may conceivably by two opinions. In other words, in case it can be demonstrated that two views are possible on that aspect of the matter, the same shall be outside the scope of Section 154. The question then arises whether it could be reasonably said that two views are possible about the application of provisions of Explanation to Section 73 on the facts of this case.
40. There are no doubts or disputes about factual aspects of the matter. It is not in dispute that the loss was incurred in a business which can be described as 'speculation business' if provisions of Explanation to Section 73 is applied. There is also no doubt about the fact that conditions laid down under Explanation to Section 73 were clearly and unambiguously satisfied. The dispute, even according to assessee's admission, is confined to the question whether the Explanation to Section 73 will determine as to what constitutes 'speculation loss' for the purpose of carry forward of speculation losses, or whether this controversy will be settled by the definition of 'speculative transactions' contained in Section 43(5).
41. It thus narrows down to the proposition that two views on this issue, if at possible, could only be with regard to the aforesaid legal position.
However, in the light of elaborate discussions in paragraphs 6 to 21 above, we do not have any doubt that the losses of a business, which satisfies the conditions laid down in Explanation to Section 73, are to be treated as 'speculation losses' for the purpose of carry forward of losses. We are also satisfied that there is no substance in assessee's plea that unless a transaction is covered by the definition of 'speculative transaction' under Section 43(5), losses from such transactions cannot be treated as 'speculation losses' for the purpose of 'set off or 'carry forward and set off. None of these propositions can, therefore, constitute a 'possible view' in the context of the scope of Section 154, as both these legal propositions, in our considered view, are devoid of any substance. In any event, in the course of original assessment proceedings, the Assessing Officer had simply not taken into account the provisions of Explanation to Section 73 and the admitted facts of the case warranted application of the same. Therefore, it could not be said that there was no error apparent from the records. As held by Hon'ble Supreme Court, in the case of ITO v. Bombay Dyeing & Mfg. Co. Ltd. 35 ITR 143 (sic). "If that be the true position then the order..'. is plainly and obviously in consistent with a specific and clear provision of the statute and that must inevitably be treated as mistake apparent from record.... If a mistake of fact apparent from record of the assessment can be rectified...... we sec no reason why a mistake of law which is glaring and obvious cannot be rectified." Similarly, Hon'ble AP High Court, in the case of CIT v. C. Subramanyam [1989] 175 ITR 148, held that an omission to apply statutory provision under Section 64(1)(i) was also held be a mistake apparent from record. We may, in this regard, also refer to the observations made by the Hon'ble Madras High Court in the case of T.S. Rajam v. Controller of Estate Duty [1968] 69 ITR 342, that "On a fair conspectus of the ratio of various decisions of this Court and the Hon'ble Supreme Court, it is now clear that for rectification of an error which is said to be apparent from record, the mere complexity of the problem or that a genuine argument is necessary to discover the same may not by themselves be oust the jurisdiction..... to rectify the same." In our considered view, therefore, no two opinions are possible about the applicability of Explanation to Section 73 on the facts of the present case and merely because learned counsel has raised certain contentions in support of a different legal view, which have anyway been rejected by us on merits, it cannot be said that the Assessing Officer did not have powers to rectify the said mistake of law. Accordingly, the CIT(A) was perfectly justified in sustaining the order under Section 154 passed by the Assessing Officer. We, therefore, decline to interfere in the matter.
42 to 43. [These paras are not reproduced here as they involve minor issues.]